WHAT ABOUT OUR DEBT LEVELS?
Amidst increasing media and water-cooler chatter of potential drops in real estate values of X%–Y%, let’s take a moment and review the systemic risk via mortgage debt numbers.
The first, and largest, piece of the puzzle is understanding that ~50% of the privately owned properties in Canada, and BC, and Metro Vancouver are in fact clear title. Not having any debt against them significantly reduces the potential economic impact of declining values, should values ever actually decline significantly.
What about the other 50%?
Has mortgage debt increased? Of course it has. Ever since the word mortgage was first uttered, balances have increased annually, partly for the same reasons ice cream cones are no longer a nickel (inflation), and partly due to decreased interest rates (but not entirely due to low rates, as previously discussed). However, the primary driver of the increase in mortgages (and in property values) has been an increasing population (demand) and a property supply that has not kept pace, followed closely by… increased household income.
Now, before anyone starts citing ‘average household income’ numbers, let’s pause and think about average homeowner’s household income. Today, a far greater percentage of homeowner households are dual income than ever before, a key factor in our increased purchasing power. Consider how far pay equity between sexes has come—not far enough, yet still a long way over the past 40 years. For instance, the traditional income of a full-time qualified nurse or schoolteacher now exceeds $85,000.00 per yr. This is a strong income on its own, and as a second income in a household it is a game changer.
So for those who would have us all believe that us wild and crazy Canadians are packing on massive debt loads to accommodate skyrocketing home prices, what do the actual numbers say?
| Year | Mortgage Balance | Average CDN Home Price | ***LTV |
| 2010 | $256,868.09 | $400,000.00 | 64.00% |
| 2011 | $267,553.11 | $400,000.00 | 66.70% |
| 2012 | $274,666.22 | $425,000.00 | 64.40% |
| 2013 | $280,621.41 | $440,000.00 | 63.60% |
| 2014 | $298,421.45 | $470,000.00 | 63.40% |
| 2015 | $323,054.86 | $500,000.00 | 64.60% |
| 2016 YTD | $339,538.97 | $565,000.00 | 59.00% |
***LTV = LOAN TO VALUE – THE PERCENTAGE OF THE VALUE OF THE HOME THAT IS DEBT.
Hmmm, yes we have borrowed more money, many of us locking in that increased debt at record-low interest rates, with a record pace of mortgage balance pay down too. But as a percentage of the overall price of the home, we actually owe less than we did six years ago.
We have gone from ~36% equity in our homes to ~41% equity in our homes.
That equity is the cushion that softens the blow of any decline in value.
The numbers paint the picture of a pretty stable bunch of borrowers, a group that know their limit and live within it.
We are fiscally conservative.
We are Canadian.
Thank you
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